ArtsAutosBooksBusinessEducationEntertainmentFamilyFashionFoodGamesGenderHealthHolidaysHomeHubPagesPersonal FinancePetsPoliticsReligionSportsTechnologyTravel
  • »
  • Personal Finance»
  • Tax & Taxes»
  • Income Tax

IRS Audit Manual: The Installment Agreement and Other Payment Options

Updated on April 12, 2011
KeithTax profile image

Keith Schroeder writes The Wealthy Accountant blog with 30 years experience in the tax field. He is the tax adviser of Mr. Money Mustache.

The question always arises when a client owes money on their tax return or from the result of an audit. You should not feel angst over a balance due. Owing the IRS money is not fun, but there are programs available to help simplify the process. In this issue of the IRS Audit Manual I will outline the IRS Installment Agreement and other payment options.

Before we begin, I assume you really owe the money to the IRS. If you dispute the IRS assessment, please review other IRS Audit Manual articles listed below. Even if you dispute the IRS claims of tax liability, you can pay the tax to avoid interest and penalty charges should the IRS prevail in the dispute.

IRS Installment Agreement

Some Facts to Consider

The IRS has no problem taking an installment agreement, but thinks about the installment agreement differently than you. In considering an installment agreement, the IRS always considers the statute of limitation where the IRS has 10 years to collect from the time the tax is assessed or they lose the right to collect.

A balance due on a timely filed tax return will rarely run into the 10 year statute of limitation issue. However, if your tax liability has been stewing for a while, your installment offer may bump up against the 10 year limit and the IRS usually denies the installment request when this happens.

Since the IRS cannot pursue additional collection actions while an installment agreement is in place, payment requests that will not pay the tax in full prior to statute of limitation are denied, except in extraordinary circumstances. The IRS will file liens against assets around six months prior to expiration of statute. An installment agreement may preclude the IRS from this remedy, so the IRS denies the request.

Planning Points

The statute of limitation creates a planning point. If the taxes you owe are eight years into the statute of limitation and you owe no assets, it may make sense to wait out the remaining two years. After the 10 years elapse, the IRS cannot take collection action against you.

It is a good idea to pull a transcript from the IRS to see how much time remains in statute. The IRS will take every collection action at its disposal as the time limit gets closer. You will need to consider you tax liability and the fact that the IRS will also attach wages besides filing liens against real estate and other property.

You may not have the resources to offer an installment that satisfies your tax liability prior to statute. In these cases, your options are limited. The IRS will deny the installment request and will file liens and attach wages.

You should also consider an Offer in Compromise (OIC) in certain cases. I discuss the OIC in other articles listed below. Bankruptcy is another option. Remember, you cannot file bankruptcy in most cases until a tax liability has aged three years. Read, the IRS has the right to swing at you three years before you can seek relief in bankruptcy court.

IRS Installment Agreement

If you are going to pay the IRS a balance due from a filed tax return or audit within 120 day, do not make any payment arrangements. Call the IRS at 1-800-829-1040 and set up a payment in full request, saving the Installment Agreement fee.

Cost: The IRS charges a $105 fee for filing an Installment Agreement; $52 if you pay by electronic funds transfer. Isn’t that nice? They charge you to pay them.

The fear many have about electronic funds payments is that the IRS will dip into your bank account and grab more money than agreed upon. People do not want to tell the IRS where they bank. Do not worry; the IRS already knows.

I recommend electronic funds payments because you save on the fee and it assures you make all payments on time. Failure to make a payment on time will result in termination of the Installment Agreement and the IRS will begin aggressive collection actions.

Form: You request an installment agreement with the IRS by filing form 9465. You can also file online at www.irs.gov. Under the pull-down menu “I need to…” select “Set up a Payment Plan.”

Guaranteed Installment Agreements: The IRS is required to accept your installment request if you owe less than $10,000 and you meet the following three points:

  • In the last five years you filed your taxes on time and paid all taxes due
  • You provide the IRS information required to make the installment determination
  • You agree to pay the tax in full within three years.

Large Tax Liabilities: If you owe the IRS more than $25,000 you must complete and attach Form 433-F, Collection Information Statement, to the request.

Final Notes

Owing the IRS is not fun. Letting the issue fester only makes the matter worse. As soon as you face a tax liability, contact the IRS and make arrangements. You reduce interest and penalties when you face the issue and work on resolving it.

The IRS Installment Agreement is the best way to deal with a tax bill you cannot pay within 120 days. IRS collection actions are stopped while you have a valid Installment Agreement in place.

If your circumstances change and you are unable to meet the installment payments, contact the IRS and have the agreement modified.

You can always make additional payments to satisfy your tax bill sooner. The faster you get the bill paid, the sooner you stop paying the IRS interest. You want to get off the IRS’ radar at the earliest possible moment.

Most important, never bury your head in the sand when a tax problem arises. The problem will only get worse. Deal with the issue. File a request with the IRS for an Installment Agreement. Then get your life back. Good luck. (Luck has nothing to do with it.)

Comments

Submit a Comment

No comments yet.

working

This website uses cookies

As a user in the EEA, your approval is needed on a few things. To provide a better website experience, hubpages.com uses cookies (and other similar technologies) and may collect, process, and share personal data. Please choose which areas of our service you consent to our doing so.

For more information on managing or withdrawing consents and how we handle data, visit our Privacy Policy at: "https://hubpages.com/privacy-policy#gdpr"

Show Details
Necessary
HubPages Device IDThis is used to identify particular browsers or devices when the access the service, and is used for security reasons.
LoginThis is necessary to sign in to the HubPages Service.
Google RecaptchaThis is used to prevent bots and spam. (Privacy Policy)
AkismetThis is used to detect comment spam. (Privacy Policy)
HubPages Google AnalyticsThis is used to provide data on traffic to our website, all personally identifyable data is anonymized. (Privacy Policy)
HubPages Traffic PixelThis is used to collect data on traffic to articles and other pages on our site. Unless you are signed in to a HubPages account, all personally identifiable information is anonymized.
Amazon Web ServicesThis is a cloud services platform that we used to host our service. (Privacy Policy)
CloudflareThis is a cloud CDN service that we use to efficiently deliver files required for our service to operate such as javascript, cascading style sheets, images, and videos. (Privacy Policy)
Google Hosted LibrariesJavascript software libraries such as jQuery are loaded at endpoints on the googleapis.com or gstatic.com domains, for performance and efficiency reasons. (Privacy Policy)
Features
Google Custom SearchThis is feature allows you to search the site. (Privacy Policy)
Google MapsSome articles have Google Maps embedded in them. (Privacy Policy)
Google ChartsThis is used to display charts and graphs on articles and the author center. (Privacy Policy)
Google AdSense Host APIThis service allows you to sign up for or associate a Google AdSense account with HubPages, so that you can earn money from ads on your articles. No data is shared unless you engage with this feature. (Privacy Policy)
Google YouTubeSome articles have YouTube videos embedded in them. (Privacy Policy)
VimeoSome articles have Vimeo videos embedded in them. (Privacy Policy)
PaypalThis is used for a registered author who enrolls in the HubPages Earnings program and requests to be paid via PayPal. No data is shared with Paypal unless you engage with this feature. (Privacy Policy)
Facebook LoginYou can use this to streamline signing up for, or signing in to your Hubpages account. No data is shared with Facebook unless you engage with this feature. (Privacy Policy)
MavenThis supports the Maven widget and search functionality. (Privacy Policy)
Marketing
Google AdSenseThis is an ad network. (Privacy Policy)
Google DoubleClickGoogle provides ad serving technology and runs an ad network. (Privacy Policy)
Index ExchangeThis is an ad network. (Privacy Policy)
SovrnThis is an ad network. (Privacy Policy)
Facebook AdsThis is an ad network. (Privacy Policy)
Amazon Unified Ad MarketplaceThis is an ad network. (Privacy Policy)
AppNexusThis is an ad network. (Privacy Policy)
OpenxThis is an ad network. (Privacy Policy)
Rubicon ProjectThis is an ad network. (Privacy Policy)
TripleLiftThis is an ad network. (Privacy Policy)
Say MediaWe partner with Say Media to deliver ad campaigns on our sites. (Privacy Policy)
Remarketing PixelsWe may use remarketing pixels from advertising networks such as Google AdWords, Bing Ads, and Facebook in order to advertise the HubPages Service to people that have visited our sites.
Conversion Tracking PixelsWe may use conversion tracking pixels from advertising networks such as Google AdWords, Bing Ads, and Facebook in order to identify when an advertisement has successfully resulted in the desired action, such as signing up for the HubPages Service or publishing an article on the HubPages Service.
Statistics
Author Google AnalyticsThis is used to provide traffic data and reports to the authors of articles on the HubPages Service. (Privacy Policy)
ComscoreComScore is a media measurement and analytics company providing marketing data and analytics to enterprises, media and advertising agencies, and publishers. Non-consent will result in ComScore only processing obfuscated personal data. (Privacy Policy)
Amazon Tracking PixelSome articles display amazon products as part of the Amazon Affiliate program, this pixel provides traffic statistics for those products (Privacy Policy)